Meiji’s Profit Downward Revision a Surprise; Probiotics Improving but Yogurt Volume Decline Widening

Narrow-moat Meiji’s further downward revision of its full-year guidance, slashing operating profits by JPY 6 billion or 7% in just three months, was a surprise. While sales of its moaty probiotics yogurt finally swung back to growth, widened volume decline of yogurt, as a result of consumers’ downtrading and intensified competition, combined with higher-than-expected energy cost inflation and promotional spending, is attributable to the cut in profit guidance. We have delayed our expectation of profit recovery toward 2024 from mid 2023 as another round of prices hikes, to be implemented in April, is likely to further depress demand in some categories. We have accordingly lowered our fair value estimate to JPY 8,700 from JPY 9,100. Our profit estimates are a touch below the fiscal 2022 guidance.